While the investment community has considered environmental, social, and governance (ESG) factors for some time now, an increasing focus from insurers on ESG is changing the insurance landscape rapidly. As a result, companies operating in or adjacent to carbon-heavy industries face a challenging insurance market for obtaining cost efficient and sustainable insurance.
In June 2020, we saw the release of the first ESG guide for the global insurance industry developed by the United Nations (UN) Environment Programme’s Principles for Sustainable Insurance Initiative, “Managing environmental, social and governance risks in non-life insurance business.” [PDF]
The Sustainable Insurance Initiative is based on four key principles:
The intent of these principles is to provide a common aspiration and global framework for the insurance industry to manage ESG issues in respect to risk assessment and insurance underwriting.
While not intended as a formal standard, the guide is intended to be a tool for underwriters to consider ESG in the context of their business model, specific lines of business, size and geographical scope.
The guide covers the following eight areas for underwriters to consider:
It will be interesting to see if this brings alignment or consistency in approach to ESG factors considered in underwriting, rather than the varied, ad hoc approach we have seen from insurers to date.
While some insurers have issued public statements regarding their position on certain industry segments, many others take a more selective, case-by-case approach when reviewing the businesses they will continue to insure. Given the changing market, insureds should proactively include their response to ESG issues as part of their underwriting submission. Such actions may include: